This article was co-authored by Michael R. Lewis. Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in Business & Finance.

There are 13 references cited in this article, which can be found at the bottom of the page.

Becoming rich requires knowledge, hard work, and most importantly, a plan. While getting rich is by no means easy, there are a few paths that are proven to make you rich over time assuming you put in the time, effort, and dedication. By investing in both yourself, and in the stock market, you are very likely to end up well-off someday.

Steps

Method1

Saving Your Money

1

Save your money. Saving money is one of the most important skills on the path to wealth. While the saying "a penny saved is a penny earned" is true to an extent, in reality, a penny saved may equal a dollar earned over time if you properly invest your saved money.

Saving money requires one thing — to spend less than you take in. This is easier to do if you have a solid income (which is why investing in education is important), but it is important to remember that it is possible to save money regardless of your income, even if the amounts are small.

Try to start by saving 10% of your paycheck each month. While this is a recommended goal, if this is not possible, simply save what you can, with the goal being to add something to your savings each month.

2

Create a budget. A solid budget is the first step on the path to wealth. It helps you to identify all your expenses, and therefore control and reduce them. This, in turn, allows you to save your money which gives you capital to invest with.

On a sheet of paper or in a word processing document, list all your income for the course of a month in one column. At the bottom, add up the sources to determine a total.

In another column, do the same for expenses. Make sure to include everything. One helpful way to do this is to examine your bank statement and credit card statement. Add all the expenses in the column together to determine the total monthly expenses.

3

Identify areas where you can reduce spending. Look closely at the expense column to find areas to reduce spending. Your goal should be to create more "space" between the total number in the income column, and the total number in the expense column.

One way to do this is to examine the difference between "wants", and "needs". A need is essential, whereas as a want is option. Look to your "wants" each month to find reductions. For example, you may want a brand new phone with a 3GB data plan, while you only need a basic phone with a simple 1GB plan.

Consider looking at your needs as well, and examining how to reduce them. For example, rent is a need, but you may be able to find a more affordable apartment in a cheaper area of town, or downgrade from a two-bedroom to a one-bedroom, for example.

4

Create an emergency savings fund. Before you invest at all, always have an emergency savings fund prepared. Experts recommend having at least three months of living expenses set aside in case of a job loss, medical emergency, or unexpected expense.

After an emergency fund is prepared, you can then focus on using your savings to build your investment portfolio.

5

Take advantage of a workplace 401(k) if you have one. About half of American workplaces have access to something called a 401(k), which is a special plan whereby some money is deducted every month from your check and invested. Often, your employer will match all or a portion of your contribution.

The benefit of a 401(k) is that your money can grow tax-free (normally taxes are charged and collected annually on invested money which makes it grow slower). In addition, money you contribute is tax-deductible. This means if you contribute $5,000, you won't pay income tax on that money.

Inquire at your workplace if a 401(k) plan is available, and make sure to take advantage of it, especially if your employer offers matching contributions. This is an excellent way to get started on a path to wealth.

Score0 / 0

Method 1 Quiz

Why should you take advantage of your work's 401(k)?

Your employer will match your contributions.

Not necessarily! Some employers match all of your contributions, while others only match a portion. Some don't match at all. Click on another answer to find the right one...

The money you contribute is tax-deductible.

Absolutely! The benefits of a 401(k) are that the money you contribute is tax-deductible and your money can grow tax-free. Read on for another quiz question.

You get the money back if you change jobs.

Not quite! If you change jobs, you can transfer your money to your new employer's 401(k) or a retirement account you set up yourself. You can also withdraw the money, but you will pay costly penalties. Pick another answer!

Method2

Investing Your Money

1

Understand the basics of investing. Investing can be very complex, but fortunately, it does not have to be. In fact, by sticking to some very basic principles, you can invest your savings and see them grow over a long time period.

Generally speaking, there are a few types of options for investing. The main ones are stocks, and bonds. Stocks represent ownership in a business, and bonds represent money you lend to a business or government in exchange for regular interest payments.

Most investors have a combination of debt and equity in their portfolios.

2

Learn about mutual funds and exchange traded funds (ETFs).Mutual funds and ETFs are similar in that each is a collection of many stocks or bonds. They provide a way to diversify your portfolio to an extent that would be impossible if you were only investing in stocks one at a time. There are some significant differences between Mutual funds and ETFs, so research both before deciding where to invest your money.

ETFs offer greater flexibility and lower expense ratios compared to mutual funds.[1] ETFs are more tax efficient, but they see fewer capital gains than mutual funds.[2]

ETFs trade like regular stocks and their value fluctuates throughout the day. The value of a mutual fund is calculated only once a day, using the closing market prices of the securities in the fund's portfolio.[3]

Mutual funds are managed while most ETFs are not. The holdings of a mutual fund are selected by a fund manager who seeks to make the fund as profitable as possible. The manager actively monitors the market and revises the fund's assets accordingly.

3

Choose a broker. Decide if you want to use an online broker or a full service broker. A full service broker has the time and knowledge to make your investment work for you; however, they can also charge a substantial fee. If you feel you understand the market fairly well and want to manage your own portfolio, then you may wish to sign up with an online broker, such as TD Ameritrade, Capital One, Scottrade, E*Trade and Charles Schwab.

Always be mindful of fees before opening accounts, as well as account minimums. Brokers all charge fees per trade (ranging from $4.95 to $10 generally), and many also require a minimum initial investment (ranging from $500 to much higher).

Currently, online brokers that have no minimum initial investment include Capital One Investing, TD Ameritrade, First Trade, TradeKing, and OptionsHouse.[4]

If you want more help with your investing, there are a variety of ways to find financial advice: if you want someone who helps you in a non-sales environment, you can find an advisor in your area at one of the following sites: letsmakeaplan.org, www.napfa.org, garrettplanningnetwork.com. You can also go to your local bank or financial institution; however, many of these charge higher fees and require a large minimum to invest ($500,000 to $1,000,000 is common).

Some advisors, (like a CERTIFIED FINANCIAL PLANNER™) have the ability to give advice in a number of areas, like investments, taxes and retirement planning, while others can only take direction but not give advice, Also important to know is that not all people who work at financial institutions are bound to a fiduciary duty of putting their client's interest first. Before starting to work with someone, ask about their training and expertise, to make sure they are the right fit for you.

4

Add to your investments regularly. Instead of investing a large amount of money and hoping the timing works out, you can invest over time, lessening the risk of investing. This is known as dollar cost averaging (DCA).[5] To do this, make a schedule (like once a month) to spend a fixed amount buying shares. When the price of the shares is low, you will purchase more shares; when the price is high, you will purchase fewer shares, all for the same amount of money each month.[6]

Let's say you commit to investing $100 in company X once a month. This month, the shares cost $10 each, so you will buy ten shares (for $100). Next month, the shares cost $20, so you buy five shares (for $100), an so on.

Always stay invested regardless of what happens to the market. There have been 11 market crashes since 1956, but every time the market has recovered to earn far more than it lost. Simply continue adding each and every month, and be comfortable with the fact that your wealth will grow over time.

5

Start investing as soon as possible. The real secret to wealth is to start investing early. Doing this will allow your wealth to "compound" over time. Compounding means that your initial amount will earn interest, then the next year, interest will be earned on your original amount plus the added interest.[7]

For example, if you invest $100 and it earns 5% in a year, you would have $105. The next year, you would earn 5% on $105. This means you would have $110.25. The next year, you would earn 5% on 110.25, and so on.

The results over time are incredible. If you invested $1,000 a month starting 30 years ago, you would have $1.8 million today. This is the surest way to create wealth.

Correct! ETFs are more tax-efficient than mutual funds; however, they see fewer capital gains. Think carefully about which investment is best for you before investing! Read on for another quiz question.

ETFs are managed by a fund manager.

Not quite! Mutual funds are managed by a fund manager. ETFs are not. Try another answer...

The value of an ETF is calculated once a day.

Not exactly! The value of a mutual funds is calculated once a day. ETFs trade like regular stocks, and their value fluctuates throughout the day. Try another answer...

ETFs offer less flexibility than mutual funds.

Nope! ETFs actually offer more flexibility and lower expense ratios compared to mutual funds. Click on another answer to find the right one...

Method3

Investing in Yourself

1

Understand the value of an education. Secondary and post-secondary education is the most certain way to set yourself on a path to wealth. A recent study found that young-adults with a bachelor's degree earned $17,500 more annually than young-adults with a high-school diploma, and those with some college training earned $3,000 more than those with just a high school diploma.[8]

The study also found that salaries for individuals with just a high school diploma is dropping over time.

Research has also shown that the unemployment rate for people with high school diplomas is much higher than for people with post secondary diplomas.[9]

2

Consider upgrading your education. As education increases, so does salary, and therefore one of the best ways to increase your income is to increase your education. A journey to wealth can begin by choosing to increase your education level.

For example, the average salary for an associate degree is $50,000, bachelor's degree is $64,000, master's degree is $81,000, and professional degree is $115,000.[10]

3

Examine your skills, abilities, interests, and talents. Whether you have little education and want to upgrade, or already have education and want to choose a more lucrative career path, it always begins with examining yourself.

Linking your natural abilities and interests with an in-demand education is a very certain way to increase your income substantially and get yourself on a path to wealth. Ask yourself what your talents are. Consider the things you do better than other people, or that you are frequently complimented on.

Ask yourself what you are passionate about, or interested in. For example, maybe a particular subject interests you, like mathematics, or a particular activity, like cooking.

Look for areas of overlap between your talents, and your interests. For example, maybe you are interested in the human body, and also are good at math or science. These interests can complement each other.

4

Choose an educational path with good earning potential. For better or worse, some fields simply pay more than others, and are in higher demand. The best situation is to have one of these higher-paying fields or occupations match your skills and interests. If not, consider exploring these fields anyways to see if you can develop an interest.[11]

Currently some of the best paying university undergraduate majors are engineering, computer science and business/economics. These majors all lead to average salaries above $75,000 per year.

If you already have a university degree and want to pursue further education, careers like law, medicine or dentistry can produce salaries well over $100,000 per year.

Make sure to consider skilled trades as well for a career. If you are a more "hands-on" person, there is considerable money that can be made in learning a skilled trade. Plumbers and HVAC technicians can earn over $50,000 per year, and the earning potential is unlimited if you start your own business.[12]

Before you choose an educational path, research what the job prospects are currently and when you will enter the field, and what the average salary is. Remember, a popular field today may be saturated in 5 to 10 years.This will help you make sure you can get a return on your investment.

5

Fund your education. Unfortunately, educating yourself costs money, but if you choose a wise major, you are very likely to earn your investment back, plus much more.

Consider spending a year or two before you start school to save some money. This will reduce the amount you need to borrow, which means you will have smaller loan repayments when you are done.

Choose your base of operations wisely. Unless you very much enjoy living in a big city or have family/other obligations, choose a less expensive area in which to live and go to school. Choosing a smaller city can lead to thousands in saved living expenses.

Apply for federal student loans to fund your education. These loans often have lower interest rates than bank loans, the interest rates are often fixed, and you do not need to repay until you are done with school.[13]

6

Never stop developing yourself. Increase your professional skills, leadership skills, financial skills, social skills and general life skills. Making––and keeping–– yourself valuable will increase your chances on whatever path you take. Continuous self-development will enable you to make better use of your financial assets.

Not quite! If you are a more "hands-on" person, you can definitely consider a skilled trade. However, you don't need to pursue a skilled trade instead of a college education if you don't want to. There’s a better option out there!

Save your money.

Not exactly! You can take out loans to fund your education -- you don't need to pay out of pocket. Guess again!

Research the job prospects.

Yup! Before you choose your educational path, research the current job prospects and average salaries in your field. However, keep in mind that a popular field today may be saturated in 5 to 10 years, so you shouldn't only pick a field because of money. Read on for another quiz question.

Apply for loans.

Not quite! You need to know what you want to study and what school you want to attend before applying for loans! Try another answer...

Yes, you can, especially if you have many degrees and a high-paying job, such as a doctor or lawyer. If you came from a very rich family, and someone puts you in their will, you might also get some money. Basically, if you work hard in school and college, you can be rich.

Your gender won't play a huge role in the money you receive in your career, so this shouldn't be your focus. However, women and men can make a lot of money in professions within science, engineering, math, and medicine.

Article Info

This article was co-authored by Michael R. Lewis. Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in Business & Finance.

"I like " Create an Emergency Savings Fund " idea the most. Moreover, all steps given here will help our readers to understand the basic concepts of being rich. It helps me a lot personally. Anyone can become rich if he has will. Thanks a ton."..." more

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Wycliffe Mutayi

Jul 29, 2016

"The article has opened my eyes like never before, I'm able to understand how I can save and invest my income to become rich. Thanks a lot for your dedication of changing peoples' lives positively."..." more

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Frank Makori

Sep 15, 2016

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Anonymous

Oct 15, 2017

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Jul 12, 2016

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Jul 31, 2016

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Jan 17, 2017

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Jul 13, 2017

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Aug 4, 2016

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Jul 2, 2016

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